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Insurance Policies May Not Indemnify Against Pollution Claims

10/09/2017

A posting on September 25th in the Texas Agriculture Law Blog documents a court ruling against a dairy attempting to claim on an insurance policy arising from groundwater pollution.

Judge Thomas Rice of the United States District Court for the Eastern District of Washington ruled that an insurance company was justified in denying coverage based on “absolute pollution exclusion clauses in the policies issued to the dairy.”

In 2013, the Cow Palace Dairy located in Washington State was sued by environmental groups alleging that seepage from retention ponds resulted in pollution of an underground aquifer. Claims were filed under the Federal Resource Conservation Recovery Act and the Comprehensive Environmental Response Compensation and Liability Act.

The action was successful and the Cow Palace was obliged to settle the lawsuit at a considerable cost. The dairy in turn claimed on their insurance policy. The policy specifically excluded liability arising from discharge, dispersal, seepage, migration, release or escape of pollutants at or from the premises and at or from any site or location used for the handling, storage, disposal, processing or treatment of waste.

The report authored by Tiffany Dowell notes that this verdict is the second which has held that exclusion clauses indemnify insurance companies against coverage resulting from environmental pollution involving manure.

The take home message is that egg production companies, especially those operating lagoons, must be aware of the limits of their insurance. Effectively in most cases they are liable for damage resulting from environmental pollution since this risk is expressly excluded from their insurance cover.   

(SMS 1,622-17  October 9th 2017)